Since time immemorial people have needed to find a quick source of cash for a short period of time. Frequently this is simply because they find they have run out of money a few days before their salary or wages are due to be paid.
One of the earliest sources of such loans was the pawnbroker. A client would leave an article of value with the pawnbroker, who would then lend a percentage of what he believed the article was worth.
If the client received the money he or she expected, the pawnbroker was repaid the loan and interest, and the article was returned. If the client was unable to repay the loan, the pawnbroker sold the article – probably for quite a lot more than the combined loan and interest.
Either way, the pawnbroker made a profit and the client received the loan required. Pawnbrokers still offer this service, and many people still take advantage of it. But these days, quick payday loans are becoming much more popular.
Instead of offering a valuable item as security, the client shows the lender proof they are due to be paid a given amount (usually proof of salary or wages), and then typically gives the lender a post-dated cheque. Many clients find this much easier than trying to find something valuable that might interest a pawnbroker.
Also, with the proliferation of such companies online it is now easier for most people to find a quick payday loan service than a local pawnbroker. In many town centres the traditional pawnbroker has disappeared completely.
The interest rate on quick payday loans is usually very high. Clients need to understand this before they take out the loan. But if they do understand, and still want the loan, then it can very usefully cover what would otherwise be a wide gap in the loans market.
Many such clients have a credit history which means they could not get a loan or overdraft from a high street bank. They are therefore grateful for the loan even though they know it is expensive.
As long as their clients do not begin to rely on such loans on a regular basis, and get into financial difficulty as a result, the companies offering them are meeting a valuable social need.
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